Overdrawn Directors Account

denwagsdenwags Just JoinedPosts: 1Registered
Help........PAT is 42k, directors drawings are 52k, therefore, the directors loan account is overdrawn by 10k. However, retained earnings from previous years is 12k (undrawn dividends) can I offset the retained earnings to clear the outstanding overdraw on drawings? If so, how would I treat it?

Comments

  • peugeotpeugeot Experienced Mentor Posts: 624Registered
    You would vote a dividend to clear the overdrawn loan account and the b/fwd accumulated reserves can be used to do this. The financial statements will show:

    Reserves brought forward....................12,000
    Retained profit for the year..................42,000
    Dividends.........................................(52,000)
    Reserves carried forward.......................2,000

    However, the client should be advised that distributable reserves are only £2k and their drawings should be restricted as dividends cannot be voted in excess of distributable reserves.

    Best wishes
    Steve
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